CORPORATION

LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

ACQUISITIONS,
MERGERS
AND
CONSOLIDATIONS

Section
40.
Sale
or
other
disposition
of
assets.
Subject
to
the
provisions
of
existing
laws
on
illegal
combinations
and
monopolies,
a
corporation
may,
by
a
majority
vote
of
its
board
of
directors
or
trustees,
sell,
lease,
exchange,
mortgage,
pledge
or
otherwise
dispose
of
all
or
substantially
all
of
its
property
and
assets,
including
its
goodwill,
upon
such
terms
and
conditions
and
for
such
consideration,
which
may
be
money,
stocks,
bonds
or
other
instruments
for
the
payment
of
money
or
other
property
or
consideration,
as
its
board
of
directors
or
trustees
may
deem
expedient,
when
authorized
by
the
vote
of
the
stockholders
representing
at
least
two-thirds
(2/3)
of
the
outstanding
capital
stock,
or
in
case
of
non-stock
corporation,
by
the
vote
of
at
least
to
two-thirds
(2/3)
of
the
members,
in
a
stockholder's
or
member's
meeting
duly
called
for
the
purpose.
Written
notice
of
the
proposed
action
and
of
the
time
and
place
of
the
meeting
shall
be
addressed
to
each
stockholder
or
member
at
his
place
of
residence
as
shown
on
the
books
of
the
corporation
and
deposited
to
the
addressee
in
the
post

the
corporate
property
and
assets
if
thereby
the
corporation
would
be

rendered
incapable
of
continuing
the
business
or
accomplishing
the
purpose
for
which
it
was
incorporated.

After
such
authorization
or
approval
by
the
stockholders
or
members,
the
board
of
directors
or
trustees
may,
nevertheless,
in
its
discretion,
abandon
such
sale,
lease,
exchange,
mortgage,
pledge
or
other
disposition
of
property
and
assets,
subject
to
the
rights
of
third
parties
under
any
contract
relating
thereto,
without
further
action
or
approval
by
the
stockholders
or
members.

Nothing
in
this
section
is
intended
to
restrict
the
power
of
any
corporation,
without
the
authorization
by
the
stockholders
or
members,
to
sell,
lease,
exchange,
mortgage,
pledge
or
otherwise
dispose
of
any
of
its
property
and
assets
if
the
same
is
necessary
in
the
usual
and
regular
course
of
business
of
said
corporation
or
if
the
proceeds
of
the
sale
or
other
disposition
of
such
property
and
assets
be
appropriated
for
the
conduct
of
its
remaining
business.

In
non-stock
corporations
where
there
are
no
members
with
voting
rights,
the
vote
of
at
least
a
majority
of
the
trustees
in
office
will
be
sufficient
authorization
for
the
corporation
to
enter
into
any
transaction
authorized
by
this
section.
(28
1/2a)

office
with
postage
prepaid,
or
served
personally:
Provided,
That
any

dissenting
stockholder
may
exercise
his
appraisal
right
under
the
conditions
provided
in
this
Code.

A
sale
or
other
disposition
shall
be
deemed
to
cover
substantially
all

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

Business
enterprise
constitutes
the
goodwill,
the
customer
lists

and
all
factors
that
make
a
business
profitable.
Villa
Rey
Transit,
Inc.
v.
Ferrer,
25
SCRA
845
(1968).

Villa
Rey
Transit,
Inc.
v.
Ferrer

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

Facts:
Villarama
entered
into
a
Contract
of
Sale
with
PANTRANCO
for
2
certificates
of
public
convenience
(first
set)
which
authorizes
the
owner
to
operate
32
units
of
buses
along
the
Pangasinan
to
Manila
route.
The
contract
contains
a
stipulation
that
prohibits
Villarama
from
applying
for

pay
for
his
own
obligations,
and
that
he
also
bought
money
into
the
corporations
coffers.
Evidence
further
shows
that
the
initial
cash
capitalization
of
the
corporation
of
P105,000
was
mostly
financed
by
Villarama.
Further,
the
evidence
shows
that
when
the
Corporation
was
in
its
initial
months
of
operation,
Villarama
purchased
and
paid
with
his

new
TPUs
for
10
years
identical
or
competing
with
the
buyers.

3
months
alter,
a
corporation
called
Villa
Rey
Transit
Inc.
was
organized
with
a
capital
stock
of
P500,000.
The
incorporators
are
Natividad
Villarama
(wife)
and
other
relatives.
After
registering
with
the
SEC,
Villa
Rey
bought
five
TPUs
(second
set)
from
Fernando
along
with
49
buses,
tools
and
other
equipment.
Villa
Rey
prayed
for
the
Public
Service

personal
checks
Ford
trucks
for
the
Corporation.
Villarama
had
co-mingled
his
personal
funds
and
transactions
with
those
made
in
the
name
of
the
Corporation.

The
clear
intention
of
the
parties
was
to
prevent
the
seller
from
conducting
any
competitive
line
for
10
years
since,
anyway,
he
has
bound
himself
not
to
apply
for
authorization
to
operate
along
such
lines

Commission
(PSC)
to
grant
it
provisional
authority
to
operate.
Before

the
PSC
could
take
action
on
the
application,
two
of
the
five
TPUs
were
levied
in
favor
of
Ferrer
in
cases
against
Fernando.
Ferrer
then
sold
these
two
TPUs
to
PANTRANCO.
Subsequently,
the
PSC
ordered
that
PANTRANCO
would
have
the
authority
to
operate
on
the
two
TPUs
acquired
from
Ferrer.
Villa
Rey
now
questioned
this
order
and
initiated
an
action
in
the
CFI
of
Manila
to
annul
these
two
TPUs.
PANTRANCO
on

for
the
duration
of
such
period.
If
the
prohibition
is
to
be
applied
only
to

the
acquisition
of
new
certificates
of
public
convenience
thru
an
application
with
the
Public
Service
Commission,
this
would,
in
effect,
allow
the
seller
just
the
same
to
compete
with
the
buyer
as
long
as
his
authority
to
operate
is
only
acquired
thru
transfer
or
sale
from
a
previous
operator,
thus
defeating
the
intention
of
the
parties.

the
other
hand
initiated
a
third-party
complaint
alleging
that

Villarama/Villa
Rey
Inc.
was
disqualified
from
operating
on
the
two
TPUs
by
virtue
of
their
original
contract
of
Sale.

Issue:
Whether
or
not
the
stipulation
on
the
original
contract
between
PANTRANCO
and
Villarama
binds
Villa
Rey
Inc.
as
well.

Held:
YES.
Evidence
discloses
that
for
someone
claiming
he
is
only
a

Doctrine:

part-time
manager,
the
evidence
on
record
shows
Villarama
practically

controlled
the
corporation
because
he
used
the
corporation
funds
to

As
a
rule
Personal
Liabilities
remain
with
the
company
even

where
assets
are
disposed.
But
those
liabilities
that
attach
to
the
object
disposed
of
follow
that
object
and
become
the
liability
of
the
purchaser/transferee.

B.
Types
of
Acquisitions\Transfers

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

As
a
rule,
a
corporation
that
purchases
the
assets
of
another
will

not
be
liable
for
the
debts
of
the
selling
corporation,
provided

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

the
former
acted
in
good
faith
and
paid
adequate
consideration
for
such
assets,
except
when
any
of
the
following
circumstances
is
present:
(1)
where
the
purchasers
expressly
or
impliedly
agrees
to
assume
the
debts;
(2)
where
the
selling
corporation
fraudulently
enters
into
the
transactions
to
escape
liability
for
those
debts
(3)
where
the
purchasing
corporation
is
merely
a
continuation
of
the
selling
corporation,
and
(4)
where
the
transaction
amounts
to
a
consolidation
or
merger
of
the
corporations.
Edward
J.
Nell
Co.
v.
Pacific,
15
SCRA
415
(1965).1

Edward
J.
Nell
Co.
v.
Pacific

including
the
pumping
equipment
it
sold
to
Insular
Farms.
The
sale

transaction
was
not
entered
into
fraudulently.
The
sale
between
Insular
and
Pacific
took
place
nearly
6
months
before
the
rendition
of
the
judgment
sought
to
be
collected.
In
addition,
Pacific
purchased
the
shares
of
stock
of
Insular
as
the
highest
bidder
at
an
action
sale
at
the
instance
of
a
bank.
The
claim
that
the
amount
paid
(P10,000)
is
grossly
inadequate
cannot
be
assailed
because
the
sale
was
submitted
to
and
approved
by
the
SEC
and
as
such,
presumed
fair
and
reasonable.

Doctrine:
See
above.

Facts:
Edward
J.
Nell
Company
(EJNC)
secured
a
judgment
against
Insular
Farms,
Inc.
representing
unpaid
balance
of
the
price
of
a
pump
sold
by
EJNC
to
the
former.
The
writ
of
execution
was
returned
stating
that
Insular
Farms
had
no
leviable
property.
A
few
months
later,
EJNC
filed
this
present
action
against
Pacific
Farms,
Inc.
for
the
collection
of
the
judgment
against
Insular
Farms,
upon
the
theory
that
Pacific
Farms
is
the
alter
ego
of
Insular
Farms.

Issue:
Whether
or
not
Pacific
Farms
is
liable
for
the
unpaid
obligation
of
Insular
Farms.

Held:
NO.
The
theory
of
EJNC
that
Pacific
Farms
is
an
alter
ego
of
Insular
Farms,
arose
because
the
former
purchased
all
or
substantially
all
of
the
shares
of
stock,
as
well
as
the
real
and
personal
properties
of
the
latter,

Even
under
the
provisions
of
the
Civil
Code,
a
creditor
has
a
real
interest
to
go
after
any
person
to
whom
the
debtor
fraudulently
transferred
its
assets.
Caltex
(Phils.),
Inc.
v.
PNOC
Shipping
and
Transport
Corp.,
498
SCRA
400
(2006).

Caltex
(Phils.),
Inc.
v.
PNOC
Shipping
and
Transport
Corp.

Facts:
The
PNOC
Shipping
and
Transport
Corporation
(PSTC)
and
the
Luzon
Stevedoring
Corporation
(LUSTEVECO)
entered
into
an
Agreement
of
Assumption
of
Obligations,
which
provides
that
PSTC
shall
assume
all
obligations
of
LUSTEVECO
with
respect
to
certain
claims
enumerated
in
the
Annexes
of
the
Agreement.
This
Agreement
also
provides
that
PSTC
shall
control
the
conduct
of
any
litigation
pending
which
may
be
filed
with
respect
to
such
claims,
and
that
LUSTEVECO
appoints
and
constitutes
PSTC
as
its
attorney-in-fact
to
demand
and
receive
any
claim
out
of
the
countersuits
and
counterclaims
arising
from
said
claims.
Among
the
actions
mentioned
is
Caltex
(Phils)
v.
Luzon
Stevedoring
Corporation,
which
was
then
pending
appeal.
Caltex
won

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

In
the
"assets-only"
acquisition,
the
purchaser
is
only
interested

in
the
"raw"
assets
and
properties
of
the
business,
perhaps
to
be
used
to
establish
his
own
business
enterprise
or
to
be
used
for
his
on-going
business
enterprise.
In
such
an
acquisition,
the
purchaser
is
not
interested
in
the
entity
of
the
corporate
owner
of
the
assets,
nor
of
the
goodwill
and
other
factors
relating
to
the
business
itself.

Held:
YES.
The
Agreement
provides
that
PSTC
shall
assume
all
the
obligations
of
LUSTEVECO.
LUSTEVECO
transferred,
conveyed
and
assigned
to
PSTC
all
of
LUSTEVECOs
business,
properties
and
assets
pertaining
to
its
tanker
and
bulk
business
together
with
all
the
obligations
relating
to
the
said
business,
properties
and
assets.
The
assumption
of
obligations
was
stipulated
not
only
in
the
Agreement
of

In
other
instances,
the
purchaser
is
interested
only
in

purchasing
the
assets
to
ensure
that
he
would
not
be
embroiled

in
issues
relating
to
the
liabilities
and
other
contractual
commitments
of
the
business
enterprise
or
those
pertaining
to
the
transferor.
2. "Business-Enterprise"
Level.
2

Assumption
of
Obligations
but
also
in
the
Agreement
of
Transfer.

Even
without
the
Agreement,
PSTC
is
still
liable.
While
the
Corporation
Code
allows
the
transfer
of
all
or
substantially
all
the
properties
and
assets
of
a
corporation,
the
transfer
should
not
prejudice
the
creditors
of
the
assignor
by
holding
the
assignee
liable
for
the
formers
obligations.

In
the
"business-enterprise"
level,
the
purchaser's
interest
goes

beyond
the
assets
or
properties
of
the
business
enterprise.
The
purchasers
primary
interest
is
essentially
to
obtain
the
earning
capability
of
the
venture.
However,
the
purchaser
in
such
is
not
interested
in
obtaining
the
juridical
entity
that
owns
the
business
enterprise,
and
therefore
purchases
directly
the
business
from
the
corporate
entity.

Doctrine:
To
allow
an
assignor
to
make
a
transfer
without
the
consent
of
its
creditors
and
without
requiring
the
assignee
to
assume
the
formers
obligations
will
defraud
creditors.

As
will
be
shown
in
the
discussions
hereunder,
the
essence
of

the
"business-enterprise"
transfer
is
that
the
effect
is
that
the
transferee
merely
continues
the
same
business
of
the
transferor.

PSALM
took
ownership
over
most
of
NPCs
assets
by
operation
of
lawthese
properties
may
be
used
to
satisfy
the
Courts
judgment,
and
such
being
the
case,
the
employees
may
go
after
such
properties.
NPC
Drivers
and
Mechanics
Association
(NPC
DAMA)
v.
NPC,
606
SCRA
409
(2009).

ATTY.
JOSE
MARIA
G.
HOFILEA

1. "Assets-Only"
Level.1

the
case
and
a
writ
of
execution
was
issued
in
its
favor
but
was
not
satisfied.
When
it
learned
about
the
agreement
between
PSTC
and
LUSTEVECO,
it
sued
PSTC
and
brought
an
action.

CORPORATION
LAW
REVIEWER
(2013-2014)

3. "Equity"
Level.
1

business
enterprise
as
it
is
owned
and
operated
by
the

corporation.
The
purchaser
takes
control
and
ownership
of
the
business
by
purchasing
the
shareholdings
of
the
corporate
owner.
The
control
of
the
business
enterprise
is
therefore
indirect,
since
the
corporate
owner
remains
the
direct
owner
of
the
business,
and
what
the
purchaser
has
actually
purchased
is
the
ability
to
elect
the
members
of
the
board
of
the
corporation
who
run
the
business.

In
an
assets-only
transfer,
the
transferee
is
not
liable
for
the

When
another
corporation
takes
over
the
assets
of
another

corporation
which
is
dissolved,
the
succeeding
corporation
is

liable
for
the
claims
against
the
dissolved
corporation
to
the
extent
of
the
fair
value
of
the
assets
assumed.
4. Voluntary
Assumption
of
Liabilities.7

The
other
instance
in
an
assets-only
transfer
when
the

transferee
becomes
liable
for
the
obligations
of
the
transferor
is
when
by
contract,
express
or
implied,
the
transferee
voluntarily
assumes
such
obligations
of
the
transferor.

D.
Business
Enterprise
Transfers:
1. Nature
of
Business-Enterprise.8

debts
and
liabilities
of
the
transferor,
except
where
the

transferee
expressly
or
impliedly
agrees
to
assume
such
debts.
2. Coverage
of
the
Bulk
Sales
Law.3

ATTY.
JOSE
MARIA
G.
HOFILEA

title
of
the
transferee
over
the
assets
would
be
void,
even
if
he

were
a
purchaser
in
good
faith.5
3. Special
Rule
in
Corporate
Dissolution.6

The
"equity"
level
constitutes
looking
at
the
entirety
of
the

C.
Assets
Only
Transfers
1. Rationale
for
Non-Assumption
of
Liability.2

An
assets-only
transfer
if
constituting
"bulk
sale"
under
the
Bulk

A
business
enterprise,
apart
from
the
juridical
personality
under

which
is
operates,
has
a
"separate
being"
of
its
own.
Properly
speaking,
a
business
enterprise
comprises
more
than
just
the

Sales
Law,4
would
affect
the
transferee
in
the
sense
that
if
the
sale
has
not
complied
with
the
requirements
of
the
Law,
the
sale
could
be
classified
as
fraudulent
and
void,
and
therefore

properties
of
the
business,
but
includes
a
"concern"
that
covers

the
employees,
the
goodwill,
list
of
clientele
and
suppliers,
etc.,
which
give
it
value
separate
and
distinct
from
its
owners
or
the

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

juridical
entity
under
which
it
operates.
This
is
what
is
termed
as
the
"economic
unit",
"the
enterprise",
"the
going
concern",
or
the
"financial
unit",
recognized
in
other
disciplines,
such
as
Economics
and
Accounting.

Although,
jurisprudence
refuses
to
recognize
a
separate

existence
of
the
business
enterprise
apart
from
the
juridical

personality
which
the
State
grants
in
corporations, 1
and
partnerships, 2
such
separate
existence
of
the
business
enterprise
does
exist
and
is
recognized
in
the
business
world.
2. Statement
of
Doctrine.
3

Jurisprudence
has
held
that
in
a
business-enterprise
transfer,

the
transferee
is
liable
for
the
debts
and
liabilities
of
his
transferor.
The
purpose
of
the
jurisprudential
doctrine
is
to
protect
the

creditors
of
the
business
by
allowing
them
a
remedy
against
the

new
controller
or
owner
of
the
business
enterprise.
3. Application
of
Doctrine

A.D.
Santos
v.
Vasquez,
22
SCRA
1156
(1968)

genossenchaft
theory
of
Friedman
that
would
recognize
the
corporate
entity
as
"the
reality
of
the
group
as
a
social
and
legal
entity
independent
of
state
recognition
and
concession."
2
Ang
Pue
&
Co.
v.
Section
of
Commerce
and
Industry,
5
SCRA
645
(1962).
The
formation
of
a
corporate
entity
or
a
partnership
is
not
a
matter
of
right,
but
rather
of
a
privilege.
3
Villanueva,
C.
L.,
&
Villanueva-Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.

Facts:
A.D.
Santos,
Inc.
operates
taxicabs.
Ventura
Vasquez
was
one
of
his
taxi
drivers.
While
driving
A.D.
Santos,
Inc.s
taxi
cab,
Vasquez
vomited
blood.
The
companys
physician,
Dr.
Roman,
treated
him.
He
was
sent
to
and
confined
in
Santo
Tomas
Hospital.
Afterwards,
he
was
admitted
at
the
Quezon
Institute
where
he
was
diagnosed
with
pulmonary
tuberculosis.
He
did
not
resume
work.
Vasquez
filed
a
claim
with
the
Workmens
Compensation
Commission.
A.D.
Santos,
Inc.
was
ordered
to
pay
compensation
and
reimburse
Vasquez
the
amount
he
spent
for
his
treatment.

Issue:
Whether
or
not
A.D.
Santos
is
liable
for
the
expenses
of
Vasquez

Held:
YES.
Vasquez
cause
of
action
against
A.D.
Santos,
Inc.
is
complete.
In
its
answer
to
Vasquezs
claim,
A.D.
Santos,
Inc.
categorically
admitted
that
Vasquez
was
its
taxi
driver.
Further,
Vasquez
contracted
pulmonary
tuberculosis
by
reason
of
his
employment.

Vasquez
cited
in
his
testimony
that
he
worked
for
City
Cab,
a
company
operated
by
a
certain
Amador
Santos.
This
does
not
detract
the
validity
of
Vasquez
right
to
compensation.
Amador
Santos
was
the
sole
owner
and
operator
of
City
Cab
(sole
proprietorship).
It
was
subsequently
transferred
to
A.D.
Santos,
Inc.
in
which
Amador
Santos
was
a
majority
stockholder.
In
business
enterprise
transfers,
the
transferee
is
liable
for
the
liabilities
of
his
transferor
arising
from
the
business
enterprise
transferred.
Mentioning
Amador
Santos
as
his
employer
should
not
confuse
the
facts
relating
to
the
employer-employee
relationship.
In
this
case,
the
veil
of
the
corporate
fiction
is
used
as
a
shield
to
perpetrate
a
fraud
or
confuse
legitimate
issues.

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

Doctrine:
In
business
enterprise
transfers,
the
transferee
is
liable
for
the
liabilities
of
his
transferor
arising
from
the
business
enterprise
transferred.

Where
a
corporation
is
formed
by,
and
consisted
of
members
of

a
partnership
whose
business
and
property
was
conveyed
and
transferred
to
the
corporation
for
the
purpose
of
continuing
its
business,
in
payment
for
which
corporate
capital
stock
was
issued,
such
corporation
is
presumed
to
have
assumed
partnership
debts,
and
is
prima
facie
liable
therefore.
Laguna
Trans.
Co.,
Inc.
v.
SSS,
107
Phil.
833
(1960).

Laguna
Trans.
Co.,
Inc.
v.
SSS

Facts:
In
1940
the
Bian
Transportation
Co.,
a
corporation
duly
registered
with
the
SEC,
sold
part
of
the
lines
and
equipment
it
operates
to
G.
Mercado,
A.
Mercado,
Mata
and
Vera
Cruz.
After
this,
the
vendees
formed
an
unregistered
partnership
under
the
name
of
Laguna
Transportation
Company
which
continued
to
operate
the
lines
and
equipment
bought
from
Bian
Transportation
Co.
Later
on,
the
original
partners
forming
Laguna
Transport
Company
along
with
2
new
members
organized
a
corporation
known
as
the
Laguna
Transportation
Co.,
Inc.
and
the
corporation
was
registered
in
the
SEC
on
June
20,
1956,
which
continued
the
same
transportation
business
of
the
unregistered
partnership.
Laguna
Trans.
Co.
Inc.
requested
for
exemption
from
coverage
by
the
System
on
the
ground
that
it
started
operation
only
on
June
20,
1956,
when
it
was
registered
with
the
Securities
and
Exchange
Commission
but
on
November
11,
1957,
the
Social
Security
System
notified
plaintiff
that
it
was
covered.

Issue:
Whether
or
not
Laguna
Trans
Co.
Inc.
was
bound
by
the
compulsory
coverage
of
the
Social
Security
Act

Held:
YES.
While
it
is
true
that
a
corporation
once
formed
is
conferred
a
juridical
personality
separate
and
district
from
the
persons
composing
it,
it
is
but
a
legal
fiction
introduced
for
purposes
of
convenience
and
to
subserve
the
ends
of
justice.
To
adopt
Laguna
Trans.
Co.
Inc.s
argument
would
defeat,
rather
than
promote,
the
ends
for
which
the
Social
Security
Act
was
enacted.
An
employer
could
easily
circumvent
the
statute
by
simply
changing
his
form
of
organization
every
other
year,
and
then
claim
exemption
from
contribution
to
the
System
as
required,
on
the
theory
that,
as
a
new
entity,
it
has
not
been
in
operation
for
a
period
of
at
least
2
years.
In
this
case,
it
can
be
said
that
there
was
only
a
change
in
the
form
of
organization
of
the
entity
in
the
common
carrier
business.
This
is
said
to
be
so
because
when
the
unregistered
partnership
was
turned
into
a
corporation,
the
firm
name
was
not
altered
save
for
the
fact
that
Inc.
was
added
to
show
that
it
was
duly
incorporated
under
existing
laws.

Doctrine:
The
law
provides
that
the
Commission
may
not
compel
any
employer
to
become
a
member
of
the
System
unless
he
shall
have
been
in
operation
for
at
least
two
years,
such
is
not
applicable
to
a
corporation
that
merely
changed
its
form
of
organization.

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

A
business
enterprise
operated
under
a
partnership
and
later

incorporated,
or
where
a
corporation
assumed
all
the
assets
and
liabilities
of
the
partnership,
then
the
corporation
cannot
be
regarded,
for
purposes
of
the
SSS
Law,
as
having
come
into

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

being
only
on
the
date
of
its
incorporation
but
from
the
date
the
partnership
started
the
business.
Oromeca
Lumber
Co.
v.
SSS,
4
SCRA
1188
(1962);
San
Teodoro
Dev.
v.
SSS,
8
SCRA
96
(1963).

When
a
corporation
transferred
all
its
assets
to
another

corporation
to
settle
its
obligations
that
would
not
amount
to
a
fraudulent
transfer.
McLeod
v.
NLRC,
512
SCRA
222
(2007).

McLeod
v.
NLRC

Facts:
John
F.
McLeod
filed
a
complaint
for
unpaid
benefits
and
damages,
against
Filipinas
Synthetic
Corporation
(Filsyn),
Far
Eastern
Textile
Mills,
Inc.,
Sta.
Rosa
Textiles,
Inc.,
Patricio
Lim
and
Eric
Hu
(respondents).
McLeod
said
that
he
is
an
expert
in
textile
manufacturing
process,
and
was
hired
as
the
Manager
of
Universal
Textiles,
Inc.
(UTEX)
under
its
President,
Patricio
Lim.
Lim
later
formed
Peggy
Mills,
Inc.
(with
Filsyn
having
controlling
interest),
and
it
absorbed
McLeod.
Filsyn
then

counsel
holds
office
in
the
same
address,
and
that
all
respondents
have
the
same
key
personnel
such
as
Lim.

Issue:
Whether
or
not
an
employer-employee
relationship
exists
between
private
respondents
and
McLeod

Held:
YES
BUT
he
was
an
employee
of
Peggy
Mills
ONLY.
What
happened
between
Peggy
Mills
and
Sta.
Rosa
textile
was
dation
in
payment
with
lease.
Peggy
Mills
had
ceded,
conveyed
and
transferred
all
of
its
rights,
title
and
interests
in
and
to
the
assets
to
Sta.
Rosa
Textile
to
settle
its
obligations.

Doctrine:
See
above.

sold
Peggy
Mills
to
Far
Eastern
Textile
Mills
with
Lim
as
the
chairman
and
president.
Peggy
Mills
was
renamed
Sta.
Rosa
Textile.
When
McLeod
reached
retirement
age,
he
was
only
given
a
reduced
13
month
pay.
Lim
offered
McLeod
a
compromise
settlement
but
was
rejected.

UTEX
Peggy
Mills
Far
Eastern
Textile
Mills
Sta.
Rosa
Textile

Respondents
allege
that
Filsyn
and
Far
Eastern
Textiles
are
separate
legal
entities
and
have
no
employer
relationship
with
McLeod.
Sta.
Rosa
only
acquired
the
assets
and
NOT
the
liabilities
of
Peggy
Mills.
In
McLeods
reply,
he
alleged
that
all
the
respondents
are
solidarily
liable
for
all
salaries
and
benefits
he
is
entitled
to,
being
one
and
the
same
entity.
McLeod
said
that
their
offices
were
all
in
the
same
building,
their

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

When
the
bus
operations
belonging
to
the
estate
of
the

deceased
spouses
is
duly
incorporated
by
the
administratrix
with
the
intention
to
make
the
corporation
liable
for
past
and
pending
obligations
of
the
estate
as
the
transportation
business
itself,
then
that
liability
on
the
part
of
the
corporation,
vis--vis
the
estate,
should
continue
to
remain
with
it
even
after
the
percentage
of
the
estates
shares
of
stock
in
the
corporation
should
have
been
diluted.
Buan
v.
Alcantara,
127
SCRA
845
(1984).

Settled
now
is
the
rule
that
where
one
corporation
sells
or

otherwise
transfers
all
its
assets
to
another
corporation
for
value,
the
latter
is
not,
by
that
fact
alone,
liable
for
the
debts
and
liabilities
of
the
transferor.
Pantranco
Employees
Association
(PEA-PTGWO)
v.
NLRC,
581
SCRA
598
(2009).

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

Pantranco
Employees
Association
(PEA-PTGWO)
v.
NLRC

Facts:
The
Gonzales
family
owned
two
corporations,
PANTRANCO
North
Express
Inc.
(PNEI)
and
Macris
Realty
Corporation
(Macris).
PNEI
provided
transportation
services
and
its
terminals
were
on
the
Pantranco
properties
registered
under
the
name
of
Macris.
Due
to
financial
losses,
creditors
took
over
both
corporations
and
later
transferred
to
the
National
Investment
Development
Corporation
(NIDC),
a
subsidiary
of
the
Philippine
National
Bank.
Macris
was
later
renamed
and
merged
to
another
corporation
to
form
the
new
PNB
subsidiary,
the
PNB-Madecor.
NIDC
sold
PNEI
to
North
Express
Transport,
Inc.
(NETI),
PNEI
was
later
placed
under
sequestration
by
the
PCGG.
Eventually
PNEI
ceased
its
operation
which
came
with
the
various
labor
claims
commenced
by
the
former
employees
of
PNEI
where
the
employees
won.
The
employees
now
seek
to
attach
on
the
properties
registered
to
PNB-Madecor
to
satisfy
their
claim.

Issue:
Whether
or
not
the
former
PNEI
employees
can
attach
the
properties
(specifically
the
Pantranco
properties)
of
PNB,
PNB-Madecor
and
Mega
Prime
to
satisfy
their
unpaid
labor
claims
against
PNEI

Held:
NO.
First,
the
subject
property
is
not
owned
by
the
judgment
debtor,
PNEI.
The
properties
were
owned
by
Macris,
the
predecessor
of
PNB-Madecor.
Hence,
they
cannot
be
pursued
against
by
the
creditors
of
PNEI.
It
is
a
settled
rule
that
the
court
in
executing
judgments
extends
only
to
properties
unquestionably
belonging
to
the
judgment
debtor
alone.
Second,
the
general
rule
is
that
a
corporation
has
a
personality
separate
and
distinct
from
those
of
its
stockholders
and
other
corporations
to
which
it
may
be
connected.
Obviously,
PNB,
PNB-

Madecor,
Mega
Prime,
and
PNEI
are
corporations
with
their
own
personalities.
PNB
was
only
a
stockholder
of
PNB-Madecor
which
later
sold
its
shares
to
Mega
Prime;
and
that
PNB-Madecor
was
the
owner
of
the
Pantranco
properties.
Neither
can
we
merge
the
personality
of
PNEI
with
PNB
simply
because
the
latter
acquired
the
former.

Doctrine:
See
above.

4. Rationale
of
Doctrine
in
Business
Enterprise
Transfers

The
doctrine
in
business-enterprise
transfers
recognizes
the

reality
in
the
business
world
that
although
no
formal
mortgage
contract
is
executed,
creditors
and
suppliers
extend
credit
to
the
business
enterprise
because
they
see
the
business's
earning
capacity
and
assets
as
a
"security"
to
the
undertaking
that
they
will
eventually
be
paid
back.1
The
doctrine
therefore
puts
the
burden
on
the
shoulder
of
the
person
who
is
in
the
best
position
to
protect
himself,
namely
the
transferee,
by
obtaining
certain
guarantees
and
protection
from
his
transferor.

It
would
be
instructive
to
see
the
judicial
attitude
to
the
extension
of
credit
as

underpinning
a
clear
intention
to
establish
a
long-term
business.
On
the
issue
of
whether
a
foreign
corporation
intended
to
engage
in
business
in
the
Philippines,
in
Eriks
Pte.
Ltd.
v.
Court
of
Appeals,
267
SCRA
567
(1997),
the
Supreme
Court
found
that
the
extension
of
credit
terms
to
be
indicative
of
intent
to
do
business
in
the
Philippines
for
an
indefinite
period,
thus:
"More
than
the
sheer
number
of
transactions
entered
into,
a
clear
and
unmistakable
intention
on
the
part
of
petitioner
to
continue
the
body
of
its
business
in
the
Philippines
is
more
than
apparent.
.
.
Further,
its
grant
and
extension
of
90-day
credit
terms
to
private
respondent
for
every
purchase
made,
unarguably
shows
an
intention
to
continue
transaction
with
private
respondent,
since
in
the
usual
course
of
commercial
transactions,
credit
is
extended
only
to
customers
in
good
standing
or
to
those
on
whom
there
is
an
intention
to
maintain
long-term
relationship.

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

E.
Equity
Transfers
1. Rationale
of
Doctrine.
1

In
an
equity
transfers,
the
transferee
is
not
liable
for
the
debts

and
liabilities
of
the
transferor,
except
where
the
transferee
expressly
or
impliedly
agreed
to
assume
such
debts.

The
logic
of
the
doctrine
in
equity
transfer
finds
support
in
the

main
doctrine
of
separate
juridical
personality,
that
by

purchasing
the
shares
in
a
corporation
that
owns
a
business,
the
stockholder
does
not
by
that
reason
alone
become
the
owner
directly
of
the
business
assets
and
does
not
become
personally
liable
for
the
debts
and
liabilities
of
the
business.
2. Application
of
the
Doctrine

The
transfer
by
the
controlling
shareholder
of
all
of
its
equity
in

the
corporation
warrants
the
application
of
the
alter
ego
piercing
doctrine
since
it
shows
that
the
transferor
had
complete
control
of
the
corporation.
Phividec
v.
Court
of
Appeals,
181
SCRA
669
(1990).

Phividec
v.
Court
of
Appeals

Facts:
On
March
29,
Violeta
M.
Borres
was
injured
in
an
accident
which
the
trial
court
ruled
was
due
to
the
negligence
of
PHIVIDEC
Railways,
Inc.
(PRI).
Prior,
on
May
25,
PHIVIDEC
sold
all
its
rights
and
interests
in

operate
the
railway
assets
of
PHIVIDEC.
Borres
sued
PRI
and
Panay,
and
Panay
disclaimed
liability
on
the
ground
that
in
the
Agreement
concluded
between
PHIVIDEC
and
PHILSUCOM,
it
was
provided
that
PHIVIDEC
holds
PHILSUCOM
free
from
any
action
that
might
arise
from
any
act
of
omission
prior
to
the
turn-over.

Issue:
Whether
or
not
PHIVIDEC
should
be
held
liable.

Held:
YES.
It
is
clear
from
the
evidence
of
record
that
by
virtue
of
the
agreement
between
PHIVIDEC
and
PHILSUCOM,
particularly
the
stipulation
exempting
the
latter
from
any
claim
or
liability
arising
out
of
any
act
or
transaction
prior
to
the
turn-over,
PHIVIDEC
had
expressly
assumed
liability
for
any
claim
against
PRI.
Since
the
accident
happened
before
that
agreement
and
PRI
ceased
to
exist
after
the
turn-over,
it
should
follow
that
PHIVIDEC
cannot
evade
its
liability
for
the
injuries
sustained
by
the
private
respondent.
In
the
interest
of
justice
and
equity,
and
to
prevent
the
veil
of
corporate
fiction
from
denying
her
the
reparation
to
which
she
is
entitled,
that
veil
must
be
pierced
and
PHIVIDEC
and
PRI
regarded
as
one
and
the
same
entity.

Doctrine:
See
above.

the
PRI
to
the
PHILSUCOM.
Two
days
later,
PHILSUCOM
caused
the
creation
of
a
wholly-owned
subsidiary,
the
Panay
Railways
Inc.
to

The
general
rule
therefore
is
that
in
an
equity
transfer,

the
transferee
does
not
become
personally
liable
for
the
obligations
of
the
corporate
enterprise
under
the
main
doctrine
of
separate
juridical
personality,
unless
either

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

the
transferee
by
contract
assumes
such
obligations,
or
there
is
basis
for
piercing
the
veil
of
corporate
fiction.
1

Proper
Doctrine:
The
mere
fact
that
a
stockholder
sells
his

shares
of
stock
in
the
corporation
during
the
pendency
of
a
collection
case
against
the
corporation,
does
not
make
such
stockholder
personally
liable
for
the
corporate
debt,
since
the
disposing
stockholder
has
no
personal
obligation
to
the
creditor,
and
it
is
the
inherent
right
of
the
stockholder
to
dispose
of
his
shares
of
stock
anytime
he
so
desires.
Remo,
Jr.
v.
IAC,
172
SCRA
405
(1989).2

II.
MERGER
AND
CONSOLIDATIONS

A.
Concepts
(McLeod
v.
NLRC,
512
SCRA
222
[2007]).

A
consolidation
is
the
union
of
two
or
more
existing
entities
to

form
a
new
entity
called
the
consolidated
corporation.
A
merger,
on
the
other
hand,
is
a
union
whereby
one
or
more
existing
corporations
are
absorbed
by
another
corporation
that
survives
and
continues
the
combined
business.
Since
a
merger
or
consolidation
involves
fundamental
changes
in
the
corporation,
as
well
as
in
the
rights
of
stockholders
and
creditors,
there
must
be
an
express
provision
of
law
authorizing
them.
PNB
v.
Andrada
Electric
&
Engineering
Co.,
381
SCRA
244
(2002).

1. Plan
of
Merger
or
Consolidation
(Section
76)

Section
76.
Plan
or
merger
of
consolidation.
Two
or
more
corporations
may
merge
into
a
single
corporation
which
shall
be
one
of
the
constituent
corporations
or
may
consolidate
into
a
new
single
corporation
which
shall
be
the
consolidated
corporation.

The
board
of
directors
or
trustees
of
each
corporation,
party
to
the
merger
or
consolidation,
shall
approve
a
plan
of
merger
or
consolidation
setting
forth
the
following:

1.
The
names
of
the
corporations
proposing
to
merge
or
consolidate,
hereinafter
referred
to
as
the
constituent
corporations;

2.
The
terms
of
the
merger
or
consolidation
and
the
mode
of
carrying
the
same
into
effect;

3.
A
statement
of
the
changes,
if
any,
in
the
articles
of
incorporation
of
the
surviving
corporation
in
case
of
merger;
and,
with
respect
to
the
consolidated
corporation
in
case
of
consolidation,
all
the
statements
required
to
be
set
forth
in
the
articles
of
incorporation
for
corporations
organized
under
this
Code;
and

4.
Such
other
provisions
with
respect
to
the
proposed
merger
or
consolidation
as
are
deemed
necessary
or
desirable.
(n)

2. Stockholders
or
Members
Approvals
(Section
77)

Section
77.
Stockholder's
or
member's
approval.

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

Upon
approval
by
majority
vote
of
each
of
the
board
of
directors
or
trustees
of
the
constituent
corporations
of
the
plan
of
merger
or
consolidation,
the
same
shall
be
submitted
for
approval
by
the
stockholders
or
members
of
each
of
such
corporations
at
separate
corporate
meetings
duly
called
for
the
purpose.
Notice
of
such

meetings
shall
be
given
to
all
stockholders
or
members
of
the

respective
corporations,
at
least
two
(2)
weeks
prior
to
the
date
of
the
meeting,
either
personally
or
by
registered
mail.
Said
notice
shall
state
the
purpose
of
the
meeting
and
shall
include
a
copy
or
a
summary
of
the
plan
of
merger
or
consolidation.
The
affirmative
vote
of
stockholders
representing
at
least
two-thirds
(2/3)
of
the
outstanding
capital
stock
of
each
corporation
in
the
case
of
stock
corporations
or
at

the
president
or
vice-president
and
certified
by
the
secretary
or

assistant
secretary
of
each
corporation
setting
forth:

1.
The
plan
of
the
merger
or
the
plan
of
consolidation;

2.
As
to
stock
corporations,
the
number
of
shares
outstanding,
or
in
the
case
of
non-stock
corporations,
the
number
of
members;
and

least
two-thirds
(2/3)
of
the
members
in
the
case
of
non-stock

corporations
shall
be
necessary
for
the
approval
of
such
plan.
Any
dissenting
stockholder
in
stock
corporations
may
exercise
his
appraisal
right
in
accordance
with
the
Code:
Provided,
That
if
after
the
approval
by
the
stockholders
of
such
plan,
the
board
of
directors
decides
to
abandon
the
plan,
the
appraisal
right
shall
be
extinguished.

3.
As
to
each
corporation,
the
number
of
shares
or
members
voting
for
and
against
such
plan,
respectively.
(n)

Any
amendment
to
the
plan
of
merger
or
consolidation
may
be
made,

provided
such
amendment
is
approved
by
majority
vote
of
the
respective
boards
of
directors
or
trustees
of
all
the
constituent
corporations
and
ratified
by
the
affirmative
vote
of
stockholders
representing
at
least
two-thirds
(2/3)
of
the
outstanding
capital
stock
or
of
two-thirds
(2/3)
of
the
members
of
each
of
the
constituent
corporations.
Such
plan,
together
with
any
amendment,
shall
be
considered
as
the
agreement
of
merger
or
consolidation.
(n)

not
earlier
than
120
days
prior
to
the
date
of
filing
of
the
application
and
the
long-form
audit
report
for
absorbed
corporation(s)
are
always
required.
Long
form
audit
report
for
the
surviving
corporation
is
required
if
it
is
insolvent.
(SEC
Opinion
14,
s.
of
2002,
15
November
2002).
5. Approval
by
SEC
(Section
79)

3. Articles
of
Merger
or
Consolidation
(Section
78)

Section
78.
Articles
of
merger
or
consolidation.

After
the
approval
by
the
stockholders
or
members
as
required
by
the
preceding
section,
articles
of
merger
or
articles
of
consolidation
shall
be
executed
by
each
of
the
constituent
corporations,
to
be
signed
by

4. Submission
of
Financial
Statements
Requirements:
For
applications
of
merger,
the
audited
financial
statements
of
the
constituent
corporations
(surviving
and
absorbed)
as
of
the
date

Section
79.
Effectivity
of
merger
or
consolidation.
The
articles
of
merger
or
of
consolidation,
signed
and
certified
as
herein
above
required,
shall
be
submitted
to
the
Securities
and

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

Exchange
Commission
in
quadruplicate
for
its
approval:
Provided,
That

in
the
case
of
merger
or
consolidation
of
banks
or
banking
institutions,
building
and
loan
associations,
trust
companies,
insurance
companies,
public
utilities,
educational
institutions
and
other
special
corporations
governed
by
special
laws,
the
favorable
recommendation
of
the
appropriate
government
agency
shall
first
be
obtained.
If
the
Commission
is
satisfied
that
the
merger
or
consolidation
of
the
corporations
concerned
is
not
inconsistent
with
the
provisions
of
this
Code
and
existing
laws,
it
shall
issue
a
certificate
of
merger
or
of
consolidation,
at
which
time
the
merger
or
consolidation
shall
be
effective.

If,
upon
investigation,
the
Securities
and
Exchange
Commission
has
reason
to
believe
that
the
proposed
merger
or
consolidation
is
contrary
to
or
inconsistent
with
the
provisions
of
this
Code
or
existing
laws,
it
shall
set
a
hearing
to
give
the
corporations
concerned
the
opportunity
to
be
heard.
Written
notice
of
the
date,
time
and
place
of
hearing
shall
be
given
to
each
constituent
corporation
at
least
two
(2)
weeks
before
said
hearing.
The
Commission
shall
thereafter
proceed

When
the
procedure
for
merger/consolidation
prescribed
under

the
Corporation
Code
are
not
followed,
there
can
be
no
merger
or
consolidation,
and
corporate
separateness
between
the
constituent
corporations
remains,
and
the
liabilities
of
one
entity
cannot
be
enforced
against
another
entity.
PNB
v.
Andrada
Electric
&
Engineering
Co.,
381
SCRA
244
(2002).

Section
80.
Effects
of
merger
or
consolidation.
The
merger
or
consolidation
shall
have
the
following
effects:

1.
The
constituent
corporations
shall
become
a
single
corporation

The
issuance
by
the
SEC
of
the
certificate
of
merger
is
crucial

because
not
only
does
it
bear
out
SECs
approval
but
also
marks

which,
in
case
of
merger,
shall
be
the
surviving
corporation
designated

in
the
plan
of
merger;
and,
in
case
of
consolidation,
shall
be
the
consolidated
corporation
designated
in
the
plan
of
consolidation;

2.
The
separate
existence
of
the
constituent
corporations
shall
cease,
except
that
of
the
surviving
or
the
consolidated
corporation;

the
moment
whereupon
the
consequences
of
a
merger
take

place.
By
operation
of
law,
upon
the
effectivity
of
the
merger,
the
absorbed
corporation
ceases
to
exist
but
its
rights,
and
properties
as
well
as
liabilities
shall
be
taken
and
deemed

3.
The
surviving
or
the
consolidated
corporation
shall
possess
all
the

rights,
privileges,
immunities
and
powers
and
shall
be
subject
to
all
the
duties
and
liabilities
of
a
corporation
organized
under
this
Code;

as
provided
in
this
Code.
(n)

Mindanao
Savings
and
Loan
Asso.
V.
Willkom,
634
SCRA
291
(2010).

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

4.
The
surviving
or
the
consolidated
corporation
shall
thereupon
and
thereafter
possess
all
the
rights,
privileges,
immunities
and
franchises
of
each
of
the
constituent
corporations;
and
all
property,
real
or
personal,
and
all
receivables
due
on
whatever
account,
including
subscriptions
to
shares
and
other
choses
in
action,
and
all
and
every

Issue:
Whether
or
not
Associated
Bank,
the
surviving
corporation,
may
enforce
the
promissory
note
made
by
private
respondent
in
favor
of
CBTC,
the
absorbed
company.

other
interest
of,
or
belonging
to,
or
due
to
each
constituent

corporation,
shall
be
deemed
transferred
to
and
vested
in
such
surviving
or
consolidated
corporation
without
further
act
or
deed;
and

5.
The
surviving
or
consolidated
corporation
shall
be
responsible
and
liable
for
all
the
liabilities
and
obligations
of
each
of
the
constituent
corporations
in
the
same
manner
as
if
such
surviving
or
consolidated

Held:
YES.
Ordinarily,
in
the
merger
of
two
or
more
existing

corporations,
one
of
the
combining
corporations
survives
and
continues
the
combined
business,
while
the
rest
are
dissolved
and
all
their
rights,
properties
and
liabilities
are
acquired
by
the
surviving
corporation.
Although
there
is
a
dissolution
of
the
absorbed
corporations,
there
is
no
winding
up
of
their
affairs
or
liquidation
of
their
assets,
because
the
surviving
corporation
automatically
acquires
all
their
rights,
privileges

corporation
had
itself
incurred
such
liabilities
or
obligations;
and
any

pending
claim,
action
or
proceeding
brought
by
or
against
any
of
such
constituent
corporations
may
be
prosecuted
by
or
against
the
surviving
or
consolidated
corporation.
The
rights
of
creditors
or
liens
upon
the
property
of
any
of
such
constituent
corporations
shall
not
be
impaired
by
such
merger
or
consolidation.
(n)

and
powers,
as
well
as
their
liabilities.
The
merger,
however,
does
not
become
effective
upon
the
mere
agreement
of
the
constituent
corporations.
The
procedure
to
be
followed
is
prescribed
under
the
Corporation
Code.
Assuming
that
the
effectivity
date
of
the
merger
was
the
date
of
its
execution,
we
still
cannot
agree
that
petitioner
no
longer
has
any
interest
in
the
promissory
note.
The
agreement
itself
clearly
provides
that
all
contracts
irrespective
of
the
date
of
execution

Associated
Bank
v.
CA

Facts:
Associated
Banking
Corporation
(ABC)
and
Citizens
Bank
and
Trust
Company
(CBTC)
merged
to
form
just
one
banking
corporation
known
as
Associated
Citizens
Bank
(ACB),
which
changed
its
name
to
Associated
Bank
(AB).
Lorenzo
Sarmiento
Jr.
executed
in
favor
of
AB
a
promissory
note
whereby
the
former
undertook
to
pay
on
or
before
March
6,
1978.
Sarmiento
still
owes
AB
today
despite
repeated
demands.
He
alleges
that
AB
is
not
the
proper
party
in
interest
because
the
promissory
note
was
executed
in
favor
of
Citizens
Bank
and
Trust
Company.

entered
into
in
the
name
of
CBTC
shall
be
understood
as
pertaining
to

the
surviving
bank,
herein
petitioner.
Clause
have
been
deliberately
included
in
the
agreement
in
order
to
protect
the
interests
of
the
combining
banks;
specifically,
to
avoid
giving
the
merger
agreement
a
farcical
interpretation
aimed
at
evading
fulfillment
of
a
due
obligation.

Doctrine:
The
merger,
however,
does
not
become
effective
upon
the
mere
agreement
of
the
constituent
corporations
Section
79
requires:

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

1. Approval
by
the
SEC
of
the
articles
of
merger

2. Must
have
been
duly
approved
by
a
majority
of
the
respective

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

stockholders
of
the
constituent
corporations.
3. Merger
shall
be
effective
only
upon
the
issuance
by
the
SEC
of
a
certificate
of
merger.
4. The
effectivity
date
of
the
merger
is
crucial
for
determining
when
the
merged
or
absorbed
corporation
ceases
to
exist;
and
when
its
rights,
privileges,
properties
as
well
as
liabilities
pass
on
to
the
surviving
corporation.

Atty.
Hofilea
The
assumption
of
rights
is
a
matter
of
law.

Global
is
bound
by
the
terms
of
the
contract
entered
into
by
its

predecessor-in-interest,
Asian
Bank.
Due
to
Globals
merger
with
Asian
Bank
and
because
it
is
the
surviving
corporation,
it
is
as
if
it
was
the
one
which
entered
into
contract
with
Surecomp.
In
the
merger
of
two
existing
corporation,
one
of
the
corporations
survives
and
continues
the
business,
while
the
other
is
dissolved,
and
all
its
rights,
properties,
and
liabilities
are
acquired
by
the
surviving
corporation.
In
the
same
way,
Global
also
has
the
right
to
exercise
all
defenses,
rights,
privileges,
and
counter-claims
of
every
kind
and
nature
which
Asian
Bank
may
have
or
invoke
under
the
law.
Global
Business
Holdings
Inc.
v.
Surecompsoftware,
B.V.,
633
SCRA
94
(2010)

It
is
settled
that
in
the
merger
of
two
existing
corporations,
one

of
the
corporations
survives
and
continues
the
business,
while
the
other
is
dissolved
and
all
its
rights,
properties
and
liabilities
are
acquired
by
the
surviving
corporation.
The
surviving
corporation
therefore
has
a
right
to
institute
a
collection
suit
on
accounts
of
one
of
one
of
the
constituent
corporations.
Babst
v.
CA,
350
SCRA
341
(2001).

III.
EFFECTS
ON
EMPLOYEES
OF
CORPORATION

Facts:
Hotel
Mabuhay,
Inc.
(Mabuhay)
leased
the
premises
belonging
to
Santiago
Syjuco,
Inc.
(Syjuco)
but
failed
to
pay
their
rentals,
and
so
Syjuco
instituted
and
ejectment
case.
They
settled
the
case
with
the
surrender
of
the
premises
to
Syjuco.
The
assets
of
Mabuhay
within
it
were
sold
to
Sundowner
who
also
leased
the
property
from
Syjuco.
The
National
Union
of
Workers
in
Hotel,
Restaurant
and
Allied
Services
(NUWHRAIN)
picketed
the
leased
premises,
barricaded
the
entrance
and
denied
Sundowners
officers,
employees
and
guests
access.
The
Secretary
of
Labor
ordered
the
workers
to
return
and
for
Mabuhay
to
accept
them
pending
final
determination
of
the
issue
of
the
absorption
of
the
former
employees
of
Mabuhay.
Mabuhay
argues
that
such
is
impossible
because
it
has
ceased
operations.
NUWHRAIN
alleged
that
Mabuhay
and
Sundownder
connived
to
sell
the
assets
and
close
the
hotel
to
escape
its
obligations
to
the
employees
and
asked
that
Sundowner
accept
the
workforce
of
Mabuhay
and
pay
backwages.

Issue:
Whether
or
not
the
purchaser
of
the
assets
of
an
employer
corporation
can
be
considered
a
successor
employer
of
the
latters
employees.

Held:
NO.
It
was
only
when
Mabuhay
offered
to
sell
its
assets
and
personal
properties
in
the
premises
to
Sundowner
that
they
came
to

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

deal
with
each
other.
Thus,
the
absorption
of
the
employees
of
Mabuhay
may
not
be
imposed
on
Sundowner.
In
a
tripartite
agreement
that
was
entered
into
by
Sundowner
with
NUWHRAIN
and
Mabuhay,
it
is
clear
that
Sundowner
has
no
liability
whatsoever
to
the
employees
of
Mabuhay
and
its
responsibility
if
at
all,
is
only
to
consider
them
for
re-

B.
Business-Enterprise
Transfers:
Central
Azucarera
del
Danao
v.
CA,

employment
in
the
operation
of
the
business
in
the
same
premises.

There
is
no
implied
acceptance
of
the
employees
of
Mabuhay
by
Sundowner
and
no
commitment
or
duty
to
absorb
them.

Doctrine:
Also,
while
it
is
true
that
Sundowner
is
using
the
leased
property
for
the
same
type
of
business
as
that
of
Mabuhay,
there
can
be
no
continuity
of
the
business
operations
from
Mabuhay
to
Sundowner

Facts:
Bana-ay,
Cosculluela,
and
Palma
were
among
the
regular
and
permanent
employees
of
Central
Danao,
the
owner
and
operator
of
a
sugar
mill.
Central
Danao
later
sold
its
sugar
mill
to
DADECO.
DADECO
actually
took
over
operations
of
the
mill
pursuant
to
the
Deed
of
Sale.

Although
the
Deed
made
no
mention
of
currently
employed
employees,

because
Mabuhay
had
not
retained
control
of
the
business.
Sundowner

is
a
corporation
entirely
different
from
Mabuhay
and
has
no
controlling
interest
whatever
in
the
same.
What
is
obvious
is
that
the
Sundowner,
by
purchasing
the
assets
in
the
hotel
premises,
enabled
Mabuhay
to
pay
its
obligations
to
its
employees.
There
being
no
employer-employee
relationship
between
the
Sundowner
and
the
Mabuhay
employees,
it
cannot
be
compelled
to
absorb
the
latter
and
to
pay
them
backwages.

DADECO
did
hire
regular
and
permanent
employees
pursuant
to
its
own
hiring
and
selection
processes,
including
Bana-Ay,
Cosculluela,
and
Palma.
During
the
period
of
their
employment,
they
were
terminated
by
DADECO.
Bana-Ay,
Cosculluela,
and
Palma
filed
a
complaint
against
Central
Danao
and
DADECO.

Central
Danao
claimed
that
DADECO
was
the
employer
during
that
time

since
the
former
had
already
transferred
its
assets
to
DADECO
at
the
time
of
termination.
DADECO
claims
that
it
was
Central
Danao
who
was
liable
since
the
termination
happened
during
the
time
that
Central
Danao
was
there
employer.

Issue:
Whether
or
not
Central
Danao
is
liable

There
is
no
law
requiring
that
the
purchaser
of
MDIIs
assets

should
absorb
its
employees
.
.
.
the
most
that
the
NLRC
could
do,
for
reasons
of
public
policy
and
social
justice,
was
to
direct
[the
buyer]
to
give
preference
to
the
qualified
separated
employees
of
MDII
in
the
filling
up
of
vacancies
in
the
facilities.
MDII
Supervisors
&
Confidential
Employees
Asso.
v.
Pres.
Assistance
on
Legal
Affairs,
79
SCRA
40.

Central
Azucarera
del
Danao
v.
CA

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

Held:
YES,
CENTRAL
DANAO
IS
LIABLE.
The
Deed
reveals
no
express
stipulation
whatsoever
relative
to
the
continued
employment
by
Dadeco
of
the
former
employees
of
Central
Danao.
There
was
in
fact,
an
interruption
of
the
employment
of
the
private
respondents
in
the
sugar
central.
In
reality
then,
they
were
rehired
anew
by
Dadeco,
their
new

the
employees
that
it
was
left
with
no
alternative
but
to
close
down
the
operations
of
Lite-On.
The
Union
pushed
for
a
retrenchment
pay
equivalent
to
1
month
salary
for
every
year
of
service,
which
Complex
refused.

employer.
The
records
also
reveal
that
negotiations
for
the
sale
were
made
behind
the
back
of
the
employees
who
were
taken
by
surprise
upon
its
consummation.
Technically
then,
the
employees
were
terminated
on
the
date
of
the
sale.
Worse,
they
were
not
even
given
the
required
notice
of
termination.

Doctrine:
The
sale
or
disposition
must
be
motivated
by
good
faith.

The
machinery,
equipment
and
materials
being
used
for
production
at

Complex
were
pulled-out
from
the
company
premises
and
transferred
to
Ionics
Circuit,
Inc.
(Ionics)
at
Cabuyao,
Laguna.
The
following
day,
a
total
closure
of
company
operation
was
effected.

A
complaint
was
filed
with
the
Labor
Arbitration
Branch
of
the
NLRC.
Ionics
was
impleaded
as
a
party
because
the
officers
and
management

Indeed,
an
innocent
transferee
of
a
business
establishment
has
no

liability
to
the
employees
of
the
transferor
to
continue
employing
them.
Nor
is
the
transferee
liable
for
past
unfair
labor
practices
of
the
previous
owner,
except,
when
the
liability
therefor
is
assumed
by
the
new
employer
under
the
contract
of
sale.

personnel
were
also
holding
office
there.
Ionics
contended
that
it
was
an
entity
separate
and
distinct
from
Complex
and
had
been
in
existence
8
years
before
the
labor
dispute
arose.
Ionics
further
argued
that
the
hiring
of
some
displaced
workers
of
Complex
was
an
exercise
of
management
prerogatives.

Issue:
Whether
or
not
there
was
transfer
of
business
from
Complex
to

Complex
Electronics
Employees
Assn.
v.
NLRC

Facts:
Complex
was
engaged
in
the
manufacture
of
electronic
products.
There
were
different
lines,
including
Ionics
and
Lite-On.
The
rank
and
file
workers
of
Complex
were
organized
into
the
Complex
Electronics
Employees
Association
(Union).
Complex
received
a
fax
message
from
Lite-On,
requiring
it
to
lower
its
price
by
10%.

Complex
informed
its
Lite-On
personnel
that
such
request
of
lowering
their
selling
price
was
not
feasible
as
they
were
already
incurring
losses
at
the
present
prices
of
their
products.
Complex
regretfully
informed

Ionics

Held:
NO.
There
was
no
transfer
of
business.
A
runaway
shop
is
defined
as
an
industrial
plant
moved
by
its
owners
from
one
location
to
another
to
escape
union
labor
regulations
or
state
laws,
but
the
term
is
also
used
to
describe
a
plant
removed
to
a
new
location
in
order
to
discriminate
against
employees
at
the
old
plant
because
of
their
union
activities.
A
runaway
shop
in
this
sense,
is
a
relocation
motivated
by
anti-union
animus
rather
than
for
business
reasons.

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

earlier
firm.
Pepsi-Cola
Bottling
Co.,
v.
NLRC,
210
SCRA
277
(1992).

In
this
case,
however,
Ionics
was
not
set
up
merely
for
the
purpose
of
transferring
the
business
of
Complex.
At
the
time
the
labor
dispute
arose
at
Complex,
Ionics
was
already
existing
as
an
independent
company.
It
cannot,
therefore,
be
said
that
the
temporary
closure
in
Complex
and
its
subsequent
transfer
of
business
to
Ionics
was
for
anti-

union
purposes.
The
Union
failed
to
show
that
the
primary
reason
for
the
closure
of
the
establishment
was
due
to
the
union
activities.

Doctrine:
The
mere
fact
that
one
or
more
corporations
are
owned
or
controlled
by
the
same
or
single
stockholder
is
not
a
sufficient
ground
for
disregarding
separate
corporate
personalities.
Ionics
may
be
engaged
in
the
same
business
as
that
of
Complex,
but
this
fact
alone
is

Facts:
Private
respondent
Encabo
was
employed
as
a
maintenance

manager
in
Pepsi
Cola
Distributors
(PCD).
His
employment
was
terminated
because
of
his
negligence
in
repairing
the
beverage
plants
CEM-72
soaker
machine
which
needed
rehabilitation.
According
to
PCD,
his
delays
in
repairing
the
machine
caused
the
company
to
incur
significant
losses.

not
enough
reason
to
pierce
the
veil
of
corporate
fiction
of
the

corporation.
Well-settled
is
the
rule
that
a
corporation
has
a
personality
separate
and
distinct
from
that
of
its
officers
and
stockholders.

Encabo
filed
a
complaint
for
illegal
dismissal
and
unfair
labor
practice
claiming
that
he
was
denied
due
process.
The
NLRC
found
in
favor
of
Encabo
and
issued
a
writ
of
execution
addressed
to
Pepsi
Cola
Bottling
Corp
(PBC)
ordering
PCD
to
reinstate
him.
The
writ
was
delivered
to
Pepsi-Cola
Products
Philippines
(PCPPI).
PCCPI
alleged
that
reinstatement
is
no
longer
possible
since
PCD
had
closed
down
its
business
on
the
ground
of
serious
business
losses
and
the
new
franchise

Furthermore,
under
the
principle
of
absorption,
a
bona
fide

buyer
or
transferee
of
all,
or
substantially
all,
the
properties
of
the
seller
or
transferor
is
not
obliged
to
absorb
the
latters
employees.
The
most
that
the
purchasing
company
may
do,
for
reasons
of
public
policy
and
social
justice,
is
to
give
preference
of
reemployment
to
the
selling
companys
qualified
separated
employees,
who
in
its
judgment
are
necessary
to
the
continued

Although
a
corporation
may
have
ceased
business
operations

and
an
entirely
new
company
has
been
organized
to
take
over

holder,
PCPPI,
is
a
new
entity.

Issue:
Whether
or
not
PCPPI
is
liable

Held:
YES.
PCPPI
is
liable
and
must
reinstate
Encabo.
PCD
may
have
ceased
business
operations
and
PCPPI
may
be
a
new
company
but
it
does
necessarily
follow
that
one
may
now
be
held
liable
for
illegal
acts
committed
by
the
earlier
firm.
The
complaint
was
filed
when
PCD
was

the
same
type
of
operations,
it
does
not
necessarily
follow
that

no
one
may
now
be
held
liable
for
illegal
acts
committed
by
the

still
in
existence.
Pepsi-Cola
never
stopped
doing
business
in
the

Philippines.
The
same
soft
drink
products
sold
in
1988
when
the

operation
of
the
business
establishment.
Barayoga
v.
Asset

Privation
Trust,
473
SCRA
690
(2005).

Pepsi-Cola
Bottling
Co.,
v.
NLRC

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

complaint
was
initiated
continue
to
be
sold
now.
The
sale
of
products
did
not
stop
at
the
time
PCD
bowed
out
and
PCPPI
came
into
being.
There
is
no
evidence
presented
showing
that
PCCPI,
as
the
new
entity
or
purchasing
company
is
free
from
any
liabilities
incurred
by
the
former
company.

In
fact,
in
the
surety
bond
put
up
by
petitioners,
both
PCD
and
PCPPI
bound
themselves
to
answer
for
monetary
awards
which
clearly
implies
that
the
PCPPI
as
a
result
of
the
transfer
of
the
franchise
bound
itself
to
answer
for
the
liability
of
PCD
to
its
employees.

Doctrine:
See
above.

Where
a
corporation
is
closed
for
alleged
losses
and
its

equipment
are
transferred
to
another
company
which
engaged
in
the
same
operations,
the
separate
juridical
personality
of
the
latter
can
be
pierced
to
make
it
liable
for
the
labor
claims
of
the
employees
of
the
closed
company.
National
Federation
of
Labor
Union
v.
Ople,
143
SCRA
124
(1986).

transgressions
of
his
or
her
precedessor.
Peafrancia
Tours
and

Facts:
Private
respondent
Yute
started
working
with
Pepsi-Cola
Bottling
Company
(PCBCP)
as
contractual
maintenance
electrician
and
when
Pepsi
Cola
Distributors
(PCD)
took
over
the
companys
manufacturing
operations,
he
was
absorbed
as
a
regular
employee.
PCD
terminated
Yute
for
alleged
abandonment
of
work
and/or
absence
without
leave
so
he
filed
a
complaint
for
illegal
dismissal
before
the
NLRC
wherein
the
labor
arbiter
declared
the
dismissal
illegal
and
ordered
PCD
to
reinstate
him.
However,
33
days
after
his
reinstatement,
PCD
stopped
payment
of
Yutes
salary
on
the
ground
that
it
allegedly
sold
its
business
interest
with
Pepsi
Cola
Products
Philippines,
Inc.
(PCPPI)

a
corporation
(i.e.,
business
enterprise
transfers),
the
liabilities

of
the
previous
owners
to
its
employees
are
not
enforceable
against
the
buyer
or
transferee,
unless
(a)
the
latter
unequivocally
assumes
them;
or
(b)
the
sale
or
transfer
was
made
in
bad
faith.
Barayoga
v.
Asset
Privatization
Trust,
473
SCRA
690
(2005).

NLRC
issued
a
writ
of
execution
ordering
PCD
to
pay
the
salaries.
PCPPI
filed
in
the
case
a
motion
praying
that
the
change
of
ownership
of
the
company
be
taken
cognizance
of
by
the
NLRC
saying
that
PCPPI
has
a
separate
personality
from
PCD
and
therefore,
not
a
party
to
the
cases
filed.
Not
being
a
party,
they
cannot
be
subjected
to
the
issue
writ
of
execution.
NLRC
in
resolving
the
MR
modified
its
decision
by
ordering
both
PCD
and
PCPPI
to
reinstate
Yute.
PCD
was
further
ordered
to
pay

Where
the
change
of
ownership
is
done
in
bad
faith,
or
is
used

In
the
case
of
a
transfer
of
all
or
substantially
all
of
the
assets
of

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

Yutes
separation
pay.

Issue:
Whether
or
not
the
dismissal
of
Yute
on
the
ground
that
the
company
already
sold
its
business
interest
to
PCCPI
was
proper

petitioners
continued
to
work
for
the
new
owner
and
were
considered
terminated,
with
their
conformity
much
later
when
they
received
their
separation
pay
and
all
other
benefits
due
them.
Each
of
them
then
executed
a
Release
and
Waiver
which
they
acknowledged
before
Atty.
Nolasco
Discipulo,
Hearing
Officer
of
the
Butuan
City
District
Office
of

Held:
NO.
The
contention
that
the
second
dismissal
of
private

respondent
presents
an
issue
separate
and
distinct
from
the
issue
of
the
earlier
dismissal
on
December
15,
1988
is
nothing
but
an
attempt
of
PCD
to
evade
liability.
Pepsi
Cola
Distributors
of
the
Philippines
may
have
ceased
business
operations
and
Pepsi-Cola
Products
Philippines,
Inc.
may
be
a
new
company
but
it
does
not
necessarily
follow
that
no
one
may
now
be
held
liable
for
illegal
acts
committed
by
the
earlier

DOLE.

The
new
owner
caused
the
publication
of
a
notice
for
the
hiring
of
workers,
indicating
therein
who
of
the
separated
employees
could
be
accepted
on
probationary
basis.
The
petitioners
were
hired
on
probationary
basis
for
six
months
as
patchers
or
tapers,
but
were
compensated
on
piece-rate
or
task
basis.

firm.
The
complaint
was
filed
when
PCD
was
still
in
existence.
Pepsi-Cola
never
stopped
doing
business
in
the
Philippines.
The
same
soft
drinks
products
sold
in
1988
when
the
complaint
was
initiated
continue
to
be
sold
now.

Doctrine:
The
sale
of
products,
purchases
of
materials,
payment
of
obligations,
and
other
business
acts
did
not
stop
at
the
time
PCD
bowed

For
their
alleged
absence
without
leave,
Perla
Cumpay
and
Virginia
Etic
were
considered
to
have
abandoned
their
work.
The
rest
were
dismissed
later
because
they
allegedly
committed
acts
prejudicial
to
the
interest
of
the
new
management
which
consisted
of
their
"including
unrepaired
veneers
in
their
reported
productions
on
output
as
well
as
untaped
corestock
or
whole
sheets
in
their
supposed
taped

out
and
PCPPI
came
into
being.
There
is
no
evidence
presented
showing
that
PCPPI,
as
the
new
entity
or
purchasing
company
is
free
from
any
liabilities
incurred
by
the
former
corporation.

veneers/corestock."

The
employee-petitioners
allege
that
they
remained
regular
employees
of
the
corporation
because
the
change
in
ownership
and
management
of
Super
Mahogany
left
its
separate
juridical
personality
unaffected.
In
their
defense,
the
corporation
claims
that
it
was
within
their
management
prerogative
to
terminate
the
employee-petitioners,
as
they
were
re-
hired
by
the
new
management
under
probationary
status.

Manlimos
v.
NLRC

Facts:
Manlimos
along
with
15
others
were
employees
of
Mahogany
Plywood
Corporation.
A
new
owner/management
group
headed
by
Alfredo
Roxas
acquired
complete
ownership
of
the
corporation.
The
petitioners
were
advised
of
such
change
of
ownership;
however,
the

Issue:
Whether
or
not
an
innocent
transferee
of
a
business

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

establishment
has
liability
to
the
employees
of
the
transfer
or
to
continue
employing
them.

Held:
NO.
The
change
in
ownership
of
the
management
was
done
bona
fide
and
the
petitioners
did
not
for
any
moment
before
the
filing
of
their
complaints
raise
any
doubt
on
the
motive
for
the
change.
On
the
contrary,
upon
being
informed
thereof
and
of
their
eventual
termination
from
employment,
they
freely
and
voluntarily
accepted
their
separation
pay
and
other
benefits
and
individually
executed
the
Release
or
Waiver
which
they
acknowledged
before
no
less
than
a
hearing
officer
of
the
DOLE.

Since
the
petitioners
were
effectively
separated
from
work
due
to
a
bona
fide
change
of
ownership
and
they
were
accordingly
paid
their
separation
pay,
which
they
freely
and
voluntarily
accepted,
the
private
respondent
corporation
was
under
no
obligation
to
employ
them;
it
may,
however,
give
them
preference
in
the
hiring.
The
private
respondent
in
fact
hired,
but
on
probationary
basis,
was
legally
permissible.

The
hiring
of
employees
on
a
probationary
basis
is
an
exclusive
management
prerogative.
The
employer
has
the
right
or
privilege
to
choose
who
will
be
hired
and
who
will
be
denied
employment.

Doctrine:
Where
such
transfer
of
ownership
is
in
good
faith,
the
transferee
is
under
no
legal
duty
to
absorb
the
transferor
employees
as
there
is
no
law
compelling
such
absorption.
The
most
that
the
transferee
may
do,
for
reasons
of
public
policy
and
social
justice,
is
to
give
preference
to
the
qualified
separated
employees
in
the
filling
of

vacancies
in
the
facilities
of
the
purchaser.

Facts:
On
Feb.
16,
1977,
the
government
adopted
a
policy
in
Davao
that
only
one
company
can
operate
stevedoring
and
arrastre
services
in
the
ports
of
Davao.
Because
of
this,
the
companies
providing
such
services
consolidated
together
and
formed
a
corporation
named
Davao
Dockhandlers,
Inc.
which
was
later
renamed
Filipinas
Port
Services.
Among
the
corporations
in
the
consolidation
agreement
was
Davao
Maritime
Stevedoring
Corporation
(DAMASTICOR).

In
the
articles
of
incorporation
of
the
new
corporation,
it
provided
that
all
labor
force
together
with
its
necessary
personnel
complement,
of
the
merging
operators
shall
be
absorbed
by
the
merged
or
integrated
organization
to
constitute
its
labor
force.

Private
respondent,
an
employee
of
DAMASTICOR,
upon
retirement
from
Filipinas,
was
paid
his
retirement
fee
from
1977-1987.
He
however
contends
that
his
employment
from
DAMASTICOR
should
be
counted
in
computing
his
retirement
fee.

Issue:
Whether
or
not
the
successor-in-interest
of
an
employer
is
liable

CORPORATION
LAW
REVIEWER
(2013-2014)

ATTY.
JOSE
MARIA
G.
HOFILEA

for
the
differential
retirement
pay
of
an
employee
earned
by
him
when
he
was
still
under
the
employment
of
the
predecessor-in-interest.

Held:
NO.
Petitioner
cannot
be
held
liable
for
the
payment
of
the
retirement
pay
of
private
respondent
while
in
the
employ
of
DAMASTICOR.
It
is
the
latter
who
is
responsible
for
the
same
as
the
labor
contract
of
private
respondent
with
DAMASTICOR
is
in
personam
and
cannot
be
passed
on
to
the
petitioner.

Doctrine:
Unless
expressly
assumed,
labor
contracts
are
not
enforceable
against
a
transferee
of
an
enterprise,
labor
contracts
being
in
personam.

It
is
more
in
keeping
with
the
dictates
of
social
justice
and
the

State
policy
of
according
full
protection
to
labor
to
deem
employment
contracts
as
automatically
assumed
by
the
surviving
corporation
in
a
merger,
even
in
the
absence
of
an
express
stipulation
in
the
articles
of
merger
or
the
merger
plan.
By
upholding
the
automatic
assumption
of
the
non-surviving
corporations
existing
employment
contracts
by
the
surviving
corporation
in
a
merger,
the
Court
strengthens
judicial
protection
of
the
right
to
security
of
tenure
of
employees
affected
by
a
merger
and
avoids
confusion
regarding
the
status
of
their
various
benefits.
Bank
of
P.I.
v.
BPI
Employees
Union-Davao
Chapter,
etc.,
658
SCRA
828
(2011).
o Atty.
Hofilea
the
surviving
corporation,
in
a
merger
situation,
is
absorbing
everything
including
employees.
As
such,
there
is
no
interruption.
This
case
seems
to
suggest
that
the
employees
have
a
choice
whether
to
join
the
new
company
or
not.
However,
the
rule
still
is

that
employment,
because
they
are
obligations,
are

Facts:
SMC-Union
entered
into
a
Collective
Bargaining
Agreement
with
SMC.
SMC
management
informed
its
employees
in
a
letter
that
the
company
-
which
was
composed
of
4
operating
divisions
(1)
beer,
(2)
packaging,
(3)
feed
and
livestocks
and
(4)
Magnolia
and
Agri-business
-
would
undergo
a
restructuring.
Magnolia
and
Feeds
and
Livestock
divisions
were
spun-off
and
became
2
separate
and
distinct
corporations:
Magnolia
Corp.
(Magnolia)
and
San
Miguel
Foods
(SMFI).
Because
of
this,
the
CBA
was
renegotiated.
During
the
negotiations,
SMC-Union
insisted
that
the
bargaining
unit
of
SMC
should
still
include
the
employees
of
the
spun-off
corporation
and
the
CBA
shall
be
effective
for
2
years.
SMC,
on
the
other
hand,
contended
that
the
members/employees
who
had
moved
to
Magnolia
and
SMFI,
automatically
ceased
to
be
part
of
the
bargaining
unit
at
the
SMC.

Issue:
Whether
or
not
the
bargaining
unit
of
SMC
includes
also
the
employees
of
Magnolia
and
SMFI.

Held:
NO.
Magnolia
and
SMFI
were
spun-off
to
operate
as
distinct
companies.
Undeniably,
the
transformation
of
the
companies
was
a
management
prerogative
and
business
judgment
which
the
courts
cannot
look
into
unless
it
is
contrary
to
law,
public
policy
or
morals.

NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)

CORPORATION
LAW
REVIEWER
(2013-2014)

Neither
can
we
impute
any
bad
faith
on
the
part
of
SMC
so
as
to
justify
the
application
of
the
doctrine
of
piercing
the
corporate
veil.
Magnolia
and
SMFI
became
distinct
entities
with
separate
juridical
personalities.
Thus,
they
cannot
belong
to
a
single
bargaining
unit.

Doctrine:
In
determining
an
appropriate
bargaining
unit,
the
test
of
grouping
is
mutuality
or
commonality
of
interests.
Considering
the
spin-offs,
the
companies
would
consequently
have
their
respective
and
distinctive
concerns
in
terms
of
the
nature
of
work,
wages,
hours
of
work
and
other
conditions
of
employment.